Well, that wasn't a lot of fun. Although it looked like investors were willing to overlook the government shutdown when it first started on Tuesday, traders changed their mind today. Maybe it has something to do with the fact that President Obama said in an interview after the closing bell rang yesterday "this time I think Wall Street should be concerned." Simply responding to his directions, Wall Street got concerned, and stocks tanked as a result (proving that sometimes, the best thing to say is nothing). So now what? Well, if you've been reading the newsletter for at least a few days then you already know we've actually been hoping for a decent pullback to burn off the market's rather severe overbought condition. Could today's dip be the beginning of that much-needed move? Maybe, but once again the market's volatility was so extreme that it set up a lot of possible moves from where it left off on Thursday. Geez. We're actually going to look at - and handicap - the market's indices last today. There are a couple of other things we need to get out of the way first. Q3's (and more) Earnings Overview First and foremost, if the government shutdown is still in effect tomorrow, we won't be getting September's payroll growth numbers and the unemployment rate from the Department of Labor. Oh, we'll get it eventually, but if the shutdown is prolonged, we may not get it until it doesn't matter anymore. The lack of relevant economic information isn't exactly helping investors to remain bullish, or even interested in the market. Also, don't forget that the Q3 earnings season kicks off on Tuesday, when Alcoa (AA) tells investors how it did last quarter. Though it was once considered to be a barometer of what to expect for the rest of the earnings season, it seems like most investors have figured out Alcoa and the metal industry is no longer innately linked to all other industries. Heck, we'd go as far as to say most every industry operates fairly independently of other sectors, and each can do well or poorly entirely on their own merits. With that being said... What you do with this information depends on what kind of trader/investor you are, but no matter what, knowing which sectors are poised to post major earnings growth (and which are in the habit of doing so) could give you an edge heading into earnings season. As they say, read 'em and weep. The financials are once again poised for a great quarter, along with the technology sector. Yes, energy stocks are also expected to post big gains for Q3, but with oil prices and natural gas prices falling on weak demand before Q3 actually ended, I've got a feeling the energy sector is setting up a disappointment. With all of that being said, don't get too enamored by the sectors expected to do well in Q3 if they haven't done particularly well up until now. And I'm talking specifically about healthcare and utilities. Likewise, I wouldn't sweat the weak projection for staples and discretionary stocks too much either. Each of those sectors has done far better in the recent past than the pros seem to think they will now, and I've got a feeling both could end up being pleasant surprises as the reports roll in. To go along with the earnings growth data are the valuation measures for the same sectors. After all, strong growth isn't worth it if those stocks cost a fortune, right? On the flipside, low-growth areas may still hold value if those stocks are dirt cheap. Anyway, I wanted to get this data out to you before earnings season started because we plan on drilling a little deeper into each sector as we get Q3's earning data in hand. Nothing heavy - just a little more insight you're not going to be getting from the more mainstream media. For what it's worth, the pros think the S&P 500 is going to earn $26.84 per share for the third quarter. That's down from $26.95 about a week ago. Though estimates are being lowered so companies will have a better shot at meeting or exceeding estimates, the steady decline in the earnings forecast is a little bit alarming. We'll deal with that at a later time, though. Right now we've got bigger fish to fry. Forget "When" and "Where"... "How" is the Key I mentioned up above how the market's extreme volatility was making it near impossible to get bead on where it's going next. You already know I think it's overbought and due for a dip. The question has been where and when it's going to happen, and where it will stop. As I was reading this afternoon's edition of the SmallCap Network Elite Opportunity newsletter though, I was reminded of something that's at least as important is the "when" and "where" of spotting a major market bottom. The SCN EO's John Monroe wrote: If and when the index [the S&P 500] achieves the 1,666 to 1,663 level, what's going to be more important than anything else is how it happens, not necessarily the fact that it just happens. We're going to need to see some sort of big wash-out before we're convinced it's time to reverse our neutral stance to bullish. He's exactly right. The bottom should look and feel like a capitulation, marked by high volume, or a huge plunge, or both. We might also see something very extreme with the number of new highs or new lows being made that day, and/or an equally wild surge from the VIX. See, we really need to clear the decks here - mentally and emotionally as well as technically - to get bullish in a major way again. We've not seen anything close to that yet, so even if stocks do get a little traction here, it's not apt to go anywhere. Conversely, even if the ultimate plunge from the mid-September peak isn't all that dramatic in terms of the percentage points lost, if we get what Monroe's calling a washout, that may be enough to hit the market's reset button. The only things I'll add to the SmallCap Network Elite Opportunity's take are (1) today's intraday bounce effort wasn't a surprise, and (2) as much as the S&P500 looks stuck between a rock and a hard place, the NASDAQ Composite looks even more trapped... indicating that traders are very much on hold here. For the second time this week, the NASDAQ found support at the 20-day moving average line, only today it pushed up and off it. At the same time though, the composite isn't even getting a chance to test its upper band line at 3832.6. Instead, it's developing a new ceiling just a little south of there, at 3818. Until one of those lines or the other breaks, we'll have to assume investors are still on the sidelines. Nothing new there. By the way, the SmallCap Network Elite Opportunity's initial downside target between 1663 and 1666 for the S&P 500 is also an area we've been watching too... the lower 20-day Bollinger band (or where it will be by tomorrow anyway). I'm not entirely convinced the S&P 500 is going to find support there and turn around. I'm not even convinced it will find support there and gently push it lower like we saw in August. Instead, I've got a feeling we could drop right past it en route to much lower lows. Yeah, the VIX as well as the NASDAQ's Volatility Index (the VXN) both peaked and pulled back today - mirroring the market's recovery - which suggests a new bullish undertow is developing. But, I just don't see that going anywhere in this lethargic environment. Yeah, it's getting on my nerves too. While I'm usually willing to stock my neck out, this is a case where I'm content to wait for more information. Again though, we're far more interested in how any bottom happens than where it happens. John Monroe got that part of the puzzle exactly right. Now, that's not actually everything the SCN EO had to say about the market today, but if I said any more it wouldn't be fair to its subscribers. I can tell you how to find the rest of what Monroe and the rest of the SmallCap Network Elite Opportunity team had to say about where the broad market's headed from here, and it's most definitely worth a read. You can get two weeks' worth of those good reads for free, just by taking them up on their two-week trail offer. Here's how. Or, copy and paste the following link in your browser: http://www.smallcapnetwork.com/?vmpd_ckstr[click_track]=SCN+Newsletter&vmpd_ckstr_redirect=/pages/SCNEO/v1/